Asia’s submerging markets

Not long ago, the key worry in emerging Asia was taming inflation. Now it's bolstering growth. As the global outlook has darkened, the export-dependent region's stockmarkets have swooned. The MSCI Asia ex-Japan index has slid to a six-month low.

Emerging Asia's main export markets, Europe, Japan and the US, are shrinking or stagnating. China is also becoming an increasingly important trading partner for the region, with Hong Kong, Singapore and Taiwan earning 20%-25% of their GDP from exports to the Middle Kingdom. The faster-than-expected slowdown there isn't helping.

Europe also crimps Asia through its banks. These provide 36% of trade finance in Asia and they are retreating amid jitters over their exposure to indebted states and banks. "A lack of credit is hitting at economic growth and job creation," says Steven Beck of the Asian Development Bank (ADB).

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The ADB offers a trade-finance programme to cover risks that other banks are unwilling to take, says Kathy Chu in The Wall Street Journal. Demand for this programme has soared by more than 50% so far this year, compared to the same period in 2011.

There seems little prospect of a major improvement in Asian equities' prospects. Europe just gets worse, while there is scant scope for a major stimulus in China as "the economy still has a hangover from the last blowout", says The Wall Street Journal. The excessive investment in industrial capacity and real estate is coming online and bad debts are piling up. Credit has been loosened, but demand fell in April: firms don't want to borrow "when they are already having trouble making profits".

While most Asian economies still depend on exports, their stockmarkets can't shake off developed-world influences either. Emerging markets are seen as a geared play on global growth, so they are highly vulnerable to fluctuations in risk appetite. "If people are positive about Europe and the US, they will buy even more in the emerging world," says John Authers in the FT. "If they are worried about the West, they will sell emerging markets even more."

The MSCI index of developed-world stocks has outperformed its emerging-markets counterpart since 2009, a pattern that had held before the credit crunch too. So treat talk of developing economies or stocks "decoupling" with scepticism.